President, Auto Leaders Agree To Higher MPG’s

WASHINGTON (WWJ/AP) Flanked by the CEO’s of the three domestic auto companies, President Obama Friday confirmed a deal to raise fuel economy standards to 54 and a half mile per gallon by 2025.

Cars and trucks on the road today average 27 miles per gallon, a standard that will go up to 35.5 miles per gallon by the middle of this decade.

“This agreement on fuel standards represents the single most important step we have taken as a nation to reduce our dependence on foreign oil,” said the President, at an event at the Washington Convention Center.

“Just as cars will go further on a gallon of gas, our economy will go further on a barrel of oil,” Mr. Obama said.

The deal includes different standards for different types of vehicles, allowing the industry to continue to produce larger vehicles like trucks and SUV’s.

Since the government uses an older formula to determine fuel economy for these standards, analysts say the actual fuel economy average will be closer to 40 miles per gallon.

The industry has been moving to make its vehicles more fuel efficient for a while now, said Mike Robinet, who heads the global forecasting team at auto consulting firm IHS Automotive.

“Vehicle manufacturers have been very prudent in knowing that they have to improve their fuel economy, driven not only by regulations for better emissions and lower fuel economy but by certainly by consumers who have that much higher on their aspiration list when looking for vehicles.”

The standards will mean more hybrid and electric vehicles, but the vast majority of cars and trucks sold in 2025 will still have conventional powertrains.

“We have a saying in the industry there’s still a lot of room at the ICE, the internal combustion engine,” said Robinet. “There really is a lot more to be done to add more devices for better fuel economy.”

The deal was less than what environmentalists and public health advocates wanted, but more than the Detroit Three automakers desired. In a letter to the president last week, Michigan lawmakers called the higher proposal “overly aggressive,” after automakers had said they’d work to get vehicles averaging 42.6 to 46.7 miles per gallon. Green groups, meanwhile, had pushed for a 62 miles-per-gallon target by 2025.

“An auto industry that owes its survival to taxpayer bailouts ungratefully flouted the public’s demand for fuel efficiency and less pollution, fighting for loopholes until the bitter end,” said Dan Becker, Director of the Safe Climate Campaign. “We will use every opportunity, including the midterm review that the automakers demanded, to strengthen the standards.”

Some industry observers are concerned that the targets are too aggressive, and don’t take consumer preferences into account.

“We’re a much bigger believer in market forces both setting the price for vehicles, but also dictating what gets made in the marketplace,” said Scott Painter of the auto research site TrueCar.com.

There’s also the worry about how much it will cost to improve the fuel economy of vehicles.

“On the micro level, we have a hard time believing that the typical new-car customer will be happy about spending $2,000 more for his or her new car than they otherwise would for fuel economy benefits that may or may not pencil in their favor over their ownership period. And we’re not alone in feeling that way,” said Jack Nerad of Kelly Blue Book. “A recent online poll (not conducted by Kelley Blue Book) found that 72 percent of car-buyers say they support the higher fuel economy standards, but when told that vehicle prices would rise $2,000 to make that happen, support for the higher standards dropped to just 34.5 percent.”

The exact cost of meeting the standards has not been determined. Analysts say the price of gasoline in 2025 will determine how much the savings in fuel will offsett the cost of new technology.

And at a time when a consensus in Congress is elusive on the debt ceiling and curbing the federal deficit, the president said the fuel economy deal was a “valuable lesson to” Washington.

“You are all demonstrating what can happen when people put aside differences,” Mr. Obama said. “These folks are competitors, you’ve got labor and business. But they said we are going to work together to achieve something important and lasting for the country.”